A decision by a federal judge this week in Stockton's bankruptcy case has made retirees all over the country nervous, as attorneys try to determine how public employees would be affected by the ruling.

Judge Christopher Klein ruled that a bankrupt city can reduce pension benefits and can stop paying into a pension fund, like CalPERS, just as it can stop paying its debt to a bank.

"All of a sudden, you know, after you retire, you can have your pension reduced? It's like saying, 'We're going to cut your salary in half, but we still want you to work here,'" said Randal Angeloni, a retiree who worked for Sacramento County for 33 years.

Angeloni is a member of the Sacramento County Retired Employees Association, one of many organizations closely following the developments in federal court.

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The question for people like Angeloni is, what would happen if the cities and counties they worked for also filed for bankruptcy?

"I don't have the ability to go out and start earning a living again in order to make up this funding," Angeloni said.

Warren Jones, a professor of bankruptcy law at McGeorge School of Law, said Klein's decision is based on the idea that federal law trumps state law in this case, meaning bankruptcy court has the power to supersede contracts that cities have with retirement plans.

"They're living hopefully happily on their retirement, but it may be cut substantially," Jones said. "I mean, what if it was cut 60 percent? Wow. It's time to go back to work again and you're 72."

But others said retirees of local agencies shouldn't worry, at least not yet.

"They should simply be reassured that there will be many, many years of court actions if the judge were to rule against the retirees in the Stockton reorganization plan," said Al Darby, vice president of the Retired Public Employees' Association of California.

Klein is expected to make a final ruling on Stockton's reorganization plan Oct. 30. The city's attorney has said Stockton wants to keep paying into CalPERS.

Pensions became a looming issue in the city's bankruptcy after Franklin Templeton Investments, which is owed more than $30 million, protested a plan that would have paid the firm just $4 million.

The firm wants the city to pay less to CalPERS and more of its debt to Franklin Templeton.